Privatizing Social Security Idea Looks Even Worse Now

[Gardnr]

Thanks for the info. I assumed my spouse had made no contributions in my calculations but I got a quote for a 50% survivor.

I just got a quote for 100% survivor for $1,427/mo ($299,741) and now the IRR for my SS contributions is up to 2.06%

It looks like you're still missing that a non-working spouse with no SS contributions/credits gets 50% of their spouse's SS amount while the spouse is alive and then continues with a 100% survivor's benefit. That makes it tough to compare to an annuity unless you can select a 67% survivor's benefit.

 

[ERD50]

Please correct me if I am wrong. I admit I just skimmed over some of the posts, but my impression is this:

This appears to be a classic case of trying to find solutions without first defining the problem. I have never understood just what problem SS is supposed to solve. How can it be 'fixed' until we know what we want it to do?

If SS is supposed to help people who were unable (for whatever reason) to save for retirement for themselves, then please explain why:

The more you make during your life, the more SS you get?

That seems entirely backwards to me. Yes, I realize it is heavily weighted toward low income workers. But it still seems backwards. You just cannot provide solutions to poorly defined problems. It causes the debate to go in circles. Like the debate on SS.

So, maybe I'm just ignorant on this matter (may very well be the case), but just what is SS supposed to do?

-ERD50

 

[Frugality_of_Apathy]

It's SSI not SS. It's a crummy insurance policy your aren't allowed to drop. If I bought unemployment insurance with 13.5% of my gross pay from a private insurance company I'd surely get more than 3 months of payout if I lost my job after paying in for 5 years. Just saving that 13.5% in a checking account with no interest I'd have enough money after one year to take a year of vacation. If I worked for 40 years at $50,000 never getting a raise and never collecting any interest on the money I saved I could just draw off that amount at the same rate SSI payes out for 35 years. Earning just a 1% interest I could draw off the same amount SSI would give me with the 2.3 COLA for 53 years. Earning 2% I could receive the payouts forever and end up with more money in the bank every year.

And remember this is without ever getting a raise for my $50,000/year job.

SSI is a Ponzi scheme that only lasts as long as you get more suckers entering the system than drawing off of it.

 

[Gardnr]

Please correct me if I am wrong. I admit I just skimmed over some of the posts, but my impression is this:

This appears to be a classic case of trying to find solutions without first defining the problem. I have never understood just what problem SS is supposed to solve. How can it be 'fixed' until we know what we want it to do?

If SS is supposed to help people who were unable (for whatever reason) to save for retirement for themselves, then please explain why:

The more you make during your life, the more SS you get?

That seems entirely backwards to me. Yes, I realize it is heavily weighted toward low income workers. But it still seems backwards. You just cannot provide solutions to poorly defined problems. It causes the debate to go in circles. Like the debate on SS.

So, maybe I'm just ignorant on this matter (may very well be the case), but just what is SS supposed to do?

-ERD50

Well said. I think the program needs to go back to being a safety net for people to ensure they don't have to live in abject poverty in old age. We need to completely remove the notion that it's a retirement program and overhaul it accordingly, making it solvent in the process.

Then we can have a discussion about the best way for people to save for retirement, whether that's a new kind of portable group DB program that's not reliant upon a particular company's health or viability, or a individual deferred comp vehicle like a 401K, or some combo of those two (my preference). I really think we can craft a good program that would alleviate the concerns that are posed by the OP (market volatility). Some way of spreading the risk over larger groups and across time to keep the individual risks down. Just as large pension plans have done for decades.

The hard part of course it bridging the gap between the present pay as we go SS program and that future state. I really don't know the answer to that without really screwing a generation or two to pay for the profligate spending of the last 30 yrs or so. Somehow we need to ease into it and get back to a solvent state of affairs.

The politics of it is so thick that I'm afraid only a real crisis will force a fix. But maybe there's some inspirational leadership lurking out there that can make us take our medicine.

 

[Independent]

http://www.early-retirement.org/foru...now-39672.html


President George W. Bush called for a transition to a combination of a government funded program and personal accounts ("individual accounts" or "private accounts") through partial privatization of the system.
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Try google for the details

Once again, I followed your links and didn't find any proposals for changing Social Security.

People with serious proposals, and enough political clout, can get them "scored" by the SS actuaries. Here's a link Proposals addressing Social Security solvency
You'll see there are about 30 over an 8 year period. None of them were proposed by Bush. I think he doesn't want to get specific enough to get pinned down.

The "President's Commission" made 3 proposals. I don't have any source that says Bush publicly supported any one of them.

Here is some typical language on personal accounts, this happens to be from "Model 2".

For workers who participate in the individual account option, retirement and aged survivor benefits payable based on their earnings will be reduced according to a hypothetical account accumulation and annuity computation using a specified "offset yield rate". The offset yield rate for this plan is intended to be (or to average) 2 percent over price inflation. In practice, the offset yield rate could be computed as either (a) 2 percent above the realized or expected CPI inflation rate or (b) 1 percent below the realized or expected market yield on long-term Treasury bonds for each year.

The hypothetical account accumulation at retirement would be equal to the worker's personal account contributions accumulated using the specified offset yield rate for each year. The retirement (and aged survivor) benefit offset would be equal to the computed amount of a CPI-indexed life annuity purchased with this hypothetical accumulation, and based on the expected future mortality, inflation, and real interest rates used for the intermediate assumptions of the most recent OASDI Trustees Report. Offset annuities would be based on expected unisex mortality for workers who are not married at retirement. Joint and 2/3 survivor life annuities would be computed for workers who are married at retirement, reflecting the actual ages of each spouse.

The basic idea here is that the gov't borrows money so it can lend it to workers. They invest the money while they are working, then at retirement they repay the gov't with interest. If the gov't charges the same rate it pays, and the workers invest in gov't bonds, they gain exactly nothing. The suggestion that workers would be far ahead of traditional SS by adopting this proposal and investing in bonds is false.

If one worker took the loan and invested in stocks, that worker would (probably) come out ahead. However, if all the workers did that, they would force an increase in interest rates on all gov't debt. The workers gains would be offset by losses that all taxpayers would incur due to the extra interest. (It's a zero-sum game because there is no net saving.)

Maybe you have a different proposal in mind. I can't claim that I've looked at more than a couple of the others. If you want to show me which one doesn't involve additional taxes or borrowing, or lower benefits, I'd be willing to look at it with you.

 

[dex]

Once again, I followed your links and didn't find any proposals for changing Social Security.

People with serious proposals, and enough political clout, can get them "scored" by the SS actuaries. Here's a link Proposals addressing Social Security solvency
You'll see there are about 30 over an 8 year period. None of them were proposed by Bush. I think he doesn't want to get specific enough to get pinned down.

The "President's Commission" made 3 proposals. I don't have any source that says Bush publicly supported any one of them.

Here is some typical language on personal accounts, this happens to be from "Model 2".


The basic idea here is that the gov't borrows money so it can lend it to workers. They invest the money while they are working, then at retirement they repay the gov't with interest. If the gov't charges the same rate it pays, and the workers invest in gov't bonds, they gain exactly nothing. The suggestion that workers would be far ahead of traditional SS by adopting this proposal and investing in bonds is false.

If one worker took the loan and invested in stocks, that worker would (probably) come out ahead. However, if all the workers did that, they would force an increase in interest rates on all gov't debt. The workers gains would be offset by losses that all taxpayers would incur due to the extra interest. (It's a zero-sum game because there is no net saving.)

Maybe you have a different proposal in mind. I can't claim that I've looked at more than a couple of the others. If you want to show me which one doesn't involve additional taxes or borrowing, or lower benefits, I'd be willing to look at it with you.

This all came up during the Bush/Gore election and after - google info around that time. Basically, the phase in began with workers under 30 - over 30 stayed with the current system.
Strengthening Social Security

 

[Independent]

Notice that the link you provided isn't a "proposal", it's a series of goals. There isn't enough for anyone to figure out who loses. I believe that's intentional.

Bush is like an inventor trying to sell us a perpetual motion machine, but refusing to disclose enough details about the machine to show how it defies conventional physics.

I think the "President's Commisson" proposal I referenced is somewhat close to what Bush would propose if he were honest. It balances the traditional SS system by reducing benefits. (IMO, nothing wrong with that.) Then it graphs on a weird "personal accounts" provision that provides no real benefits to young people. It's just smoke and mirrors to make people think they are getting something they aren't. In particular, it does not meet your standard of providing more retirement income to people who simply invest their "personal account" money in treasuries. Nor does it add any income to Americans as a whole.

 

[FinanceDude]

Notice that the link you provided isn't a "proposal", it's a series of goals. There isn't enough for anyone to figure out who loses. I believe that's intentional.

Bush is like an inventor trying to sell us a perpetual motion machine, but refusing to disclose enough details about the machine to show how it defies conventional physics.

I think the "President's Commisson" proposal I referenced is somewhat close to what Bush would propose if he were honest. It balances the traditional SS system by reducing benefits. (IMO, nothing wrong with that.) Then it graphs on a weird "personal accounts" provision that provides no real benefits to young people. It's just smoke and mirrors to make people think they are getting something they aren't. In particular, it does not meet your standard of providing more retirement income to people who simply invest their "personal account" money in treasuries. Nor does it add any income to Americans as a whole.

Seems to me that the SS actuaries aren't very good.........

 

[dex]

Notice that the link you provided isn't a "proposal", it's a series of goals. There isn't enough for anyone to figure out who loses. I believe that's intentional.

I made a mistake - I thought you were interested in learning about it. That is why I suggested you google it.

 

[toofrugalformycat]

It looks like you're still missing that a non-working spouse with no SS contributions/credits gets 50% of their spouse's SS amount while the spouse is alive and then continues with a 100% survivor's benefit. That makes it tough to compare to an annuity unless you can select a 67% survivor's benefit.

And remember there can be any number of surviving spouses. You just have to have been married 15 years to each one.

 

[Texican]

Whats the difference?

If Social Security fails in its current state (like its predicted to) the government will bail it out. If Privatization suceeds and the market gets to the point we are today the government will bail us out. What's the difference?

 

[Linney]

And remember there can be any number of surviving spouses. You just have to have been married 15 years to each one.

Actually, it only takes 10 years.

"If you are divorced after at least 10 years of marriage, you can collect retirement benefits on your former spouse's Social Security record if you are at least age 62 and if your former spouse is entitled to or receiving benefits. If you remarry, you generally cannot collect benefits on your former spouse's record unless your later marriage ends (whether by death, divorce, or annulment). "
(Social Security Online - Get Help With Your Situation - Marriage, Divorce & Name Changes)
​

So my first husband (married 12 years) can collect based on my record.

So can my second husband (married 11 years now -- but this one better last a long time cuz this time we promised "'til death do us part" !)

--Linney

 

[FinanceDude]

If Social Security fails in its current state (like its predicted to) the government will bail it out. If Privatization suceeds and the market gets to the point we are today the government will bail us out. What's the difference?

Well, we could make the two options:

1)Invested by us as "they" see fit (today)

2)Invested in 5, 10, or 30 year Treasuries (choice)

Are you still against it??

 

[Independent]

I made a mistake - I thought you were interested in learning about it. That is why I suggested you google it.

We could have saved some back-and-forth if you would have posted your link to Bush's statement instead of expecting me to find it. I know what he has been saying, and I would have given you my opinion about it a lot sooner if I had been sure exactly which of his many comments was the basis for your opinion.

Once again, the Bush "plan" (if it follows any of the "models" from the President's Commission) doesn't provide any gains for people who simply invest in treasuries, and it doesn't provide any gains to Americans in total.